VZCZCXYZ0001
RR RUEHWEB

DE RUEHMU #2474/01 3122352
ZNR UUUUU ZZH
R 082352Z NOV 06
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 8158
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS MANAGUA 002474 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/TPP, WHA/EPSC, WHA/CEN 
PLEASE PASS TO USTR/GEREFFI, MALITO 
USDOC FOR TCC/4100/MSEIGELMAN 
TREASURY FOR JHOEK 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EFIN EINV NU
SUBJECT: NICARAGUA: POST'S INPUT FOR THE 2007 NATIONAL 
TRADE ESTIMATE REPORT 
 
REF: SECSTATE 136315 
 
¶1.  This cable transmits post's input for the 2007 National 
Trade Estimate Report on Nicaragua.  Per reftel instructions, 
post transmitted this information via e-mail on November 7 to 
USTR/Gereffi and Blue, STATE/WHA/CEN/Schiffer and Kopolow, 
and STATE/EB/TPP/Clarkson and Lampron. 
 
TRADE SUMMARY 
------------- 
 
Tariffs 
------- 
 
¶2. (U) In 2002 and 2003, Nicaragua completed implementation 
of most of a broad package of tariff reductions that had been 
approved in 1997.  In those same years, two tax reform bills 
introduced additional tariff changes.  In 2005, additional 
reforms were introduced. The overall thrust of these changes 
in both legislation and practice has been to reduce tariffs 
(although there have been a few increases), eliminate 
non-tariff barriers, and greatly limit the discretion of 
government officials to waive the application of tariffs. 
The reform process has been in accordance with the reduction 
and harmonization of a common external tariff among members 
of the Central American Common Market (CACM) to between 0% 
and 15% on most items.  Nicaragua imposes regular import 
duties of 10% or 15% on many final consumer goods, a duty of 
0-5% on most primary goods, and a duty of 5-10% on 
intermediate goods from outside CACM that compete with 
products produced by CACM countries.  The tariff is assessed 
on the cost, insurance, and freight (CIF) value of a good. 
 
¶3. (U) Under CAFTA-DR, about 80% of U.S. industrial and 
commercial goods may enter Nicaragua duty-free, with 
remaining tariffs phased out over 10 years.  Nearly all 
textile and apparel goods that meet the CAFTA-DR's rules of 
origin are duty-free and quota-free.  A small number of 
protected agricultural commodities, notably rice and chicken 
parts, have particularly high tariff rates.  Processed rice 
faces tariffs as high as 60%, down from 103.5% in 2002. 
Certain chicken parts face a tariff of 170%.  Tariffs on corn 
range from 10% to 15%.  Tariffs on cheese and certain other 
dairy products from countries outside the CACM region are 
subject to a common external tariff of 40%.  Under CAFTA-DR, 
Nicaragua will eliminate tariffs on nearly all agricultural 
products within 15 years, including its tariffs on rice and 
yellow corn.  Nicaragua will eliminate its tariffs on chicken 
leg quarters within 18 years and on dairy products within 20 
years.  For the most sensitive products, tariff rate quotas 
permit some immediate duty-free access for specified 
quantities during the tariff phase-out period, which will 
expand over time.  Nicaragua will liberalize trade in white 
corn through expansion of a tariff rate quota. 
 
Non-Tariff Measures 
------------------- 
 
¶4. (U) A "selective consumption tax" on luxury items is 
levied on a limited number of items.  The tax is generally 
lower than 15%, with a few exceptions.  The tax is not 
applied exclusively to imports, however, domestic goods are 
taxed according to the manufacturer's price while imports are 
taxed according CIF value.  Alcoholic beverages and tobacco 
products are taxed according to the price charged to the 
retailer.  The selective consumption tax on soft drinks is 9%. 
 
STANDARDS, TESTING, LABELING, AND CERTIFICATION 
--------------------------------------------- -- 
 
¶5. (U) Consumer products must be labeled in Spanish, except 
for products destined for the Atlantic region, where English 
may be required.  Importers may translate labels into 
Spanish.  The Government of Nicaragua accepts a sticker with 
a Spanish translation. 
 
¶6. (U) When the United States and Central America launched 
free trade agreement negotiations, they initiated a working 
group on sanitary/phytosanitary barriers to agricultural 
trade to facilitate market access.  As a result of the work 
of this group, Nicaragua committed to resolve specific 
measures affecting U.S. exports to Nicaragua.  On February 
18, 2005, the President of Nicaragua signed a decree 
recognizing the equivalency of foreign meat and poultry 
inspection systems.  After auditing the U.S. meat and poultry 
inspection system, the Government of Nicaragua granted 
equivalency to the United States.  U.S. meat and poultry 
exports from any federally inspected establishment are now 
allowed into Nicaragua. 
 
¶7. (U) The U.S. Animal and Plant Health Inspection Service 
has negotiated protocols with Nicaragua for the importation 
of U.S. rice, wheat, yellow corn, and seed potatoes.  All 
packaged food products must be registered with the Ministry 
of Development, Industry and Trade.  If a product is imported 
in bulk and packaged in Nicaragua, a phyto/zoosanitary 
certificate is required from the country of origin and from 
the Nicaraguan Ministry of Health.  A phyto/zoosanitary 
certificate issued by Nicaragua is not required for products 
packaged in the United States. 
 
¶8. (U) Under CAFTA-DR, Nicaragua commits to abide by the 
terms of the WTO's Import Licensing Agreement.  Import 
licenses are required to import beverage alcohol, and all 
brands of alcoholic beverages must be registered annually 
with the Ministry of Health.  U.S. industry has expressed 
concern about Nicaragua's proposed standards for rum and 
"agua ardiente."  However, Central American countries, 
including Nicaragua, are in the process of developing common 
standards for several products, including distilled spirits, 
which could serve to increase market access and facilitate 
trade for U.S. producers.  Nicaragua committed under CAFTA-DR 
to explicitly recognize Bourbon and Tennessee Whiskey as 
distinct products of the United States. 
 
¶9. (U) Law 291 regulates the importation of genetically 
modified organisms (GMOs).  The law was approved in 1998 and 
modified in 2003 to require that GMOs undergo a risk analysis 
prior to importation.  The risk analysis must be performed by 
the Commission on Risk Analysis for Genetically Modified 
Organisms (CONARGEN), which makes a recommendation concerning 
importation to the Minister of Agriculture and Forestry, who 
then issues a final decision.  CONARGEN is comprised of 
officials from the Ministry of Agriculture and Forestry, the 
Nicaraguan Institute for Agricultural Technology, the 
Ministry of Environment and Natural Resources, the Ministry 
of Health, the National Autonomous University of Nicaragua in 
Leon, the National Agrarian University, and the Central 
American University in Managua.  After reaching consensus 
with anti-biotechnology organizations in 2005, the government 
submitted a compromise science-based biotechnology bill to 
the National Assembly for approval.  As of November 2006, 
passage was still pending. 
 
¶10. (U) Nicaragua is in the process of implementing the 
provisions of the Cartagena Protocol, of which it is a 
signatory.  As part of the process, in 2005 the GON began to 
require notifications and a risk analyses on the possible 
import of living modified organisms (LMOs).  CONARGEN has 
conducted risk analyses on all genetic events authorized by 
the United States for yellow corn destined for processing and 
for animal feed.  Nicaragua and the United States signed an 
agreement on the transboundary movement of LMOs destined for 
food, feed, or processing that entered into force on February 
18, 2005.  The agreement articulates a practical definition 
for LMO and non-LMO shipments for purposes of applying the 
"may contain" documentation requirement, and recognizes that 
non-LMO shipments must be defined in a sales contract as 
having 95% or greater non-LMO content. 
 
GOVERNMENT PROCUREMENT 
---------------------- 
 
¶11. (U) Nicaragua's procurement law applies to all branches 
of government as well as to the autonomous regional 
governments, municipalities, universities, and other 
institutions that receive government funds or where the state 
is a shareholder.  It sets general standards and procedures 
regulating public acquisition, leasing, construction, and 
contract of services.  Nicaragua is not party to the WTO 
Agreement on Government Procurement. 
 
¶12. (U) CAFTA-DR requires fair and transparent procurement 
procedures, including advance notice of purchases and timely 
and effective bid review procedures for procurement covered 
by the agreement.  U.S. suppliers may bid on the same basis 
as Nicaraguan suppliers on procurements by most Nicaraguan 
government entities, including key ministries and state-owned 
enterprises.  In the past, some suppliers have complained 
about inadequate notification of pending procurements. 
Nicaragua is currently implementing a computer-based system 
to make the bidding process more transparency and efficient. 
The anti-corruption provisions in CAFTA-DR require each 
government to ensure that bribery in matters affecting trade 
and investment, including government procurement, is treated 
as a criminal offense or subject to comparable penalties 
under law. 
 
EXPORT SUBSIDIES 
---------------- 
 
¶13. (U) Nicaragua does not provide export financing. 
However, all exporters receive tax benefit certificates 
equivalent to 1.5% of the FOB port of exit value of the 
exported goods.  Foreign inputs for Nicaraguan export goods 
from the country's free trade zones enter duty-free and are 
exempt from value-added tax.  Under the CAFTA-DR, Nicaragua 
may not adopt new duty waivers or expand existing duty 
waivers conditioned on the fulfillment of a performance 
requirement (e.g., the exportation of a given level or 
percentage of goods).  Nicaragua may maintain existing duty 
waiver measures provided such measures are consistent with 
its WTO obligations. 
 
INTELLECTUAL PROPERTY RIGHTS PROTECTION 
--------------------------------------- 
 
¶14. (U) In March 2006, Nicaragua strengthened its legal 
framework for protection of intellectual property rights 
(IPR) with the passage of five new laws in preparation for 
the implementation of CAFTA-DR.  The laws provide stronger 
deterrence against piracy and counterfeiting by criminalizing 
end user piracy and requiring Nicaragua to authorize the 
seizure, forfeiture, and destruction of counterfeit and 
pirated goods and the equipment used to produce them.  They 
also mandate the payment of statutory and actual damages for 
copyright and trademark infringement, to ensure that monetary 
damages can be awarded even when losses associated with a 
violation are difficult to assign. 
 
¶15. (U) Although historically IPR enforcement has been weak, 
U.S. Government and industry are working with the Nicaraguan 
government to provide training to improve enforcement.  In an 
April 2006 raid, police took custody of 13,000 pirated CDs 
and DVDs, but made no arrests. 
In October 2006, the government scored its first 
prosecutorial victory when a court convicted a local vendor 
of selling 400 pirated videos.  The vendor was fined $1,500 
and sentenced to two years in prison.  It was a short-lived 
victory as weeks later the conviction was overturned by an 
appeals court.  In coming months, the government plans to try 
its first copyright and trademark infringement case under the 
new IPR law. 
 
¶16. (U) In the past, a lack of regulation establishing 
procedures to guarantee the protection of pharmaceutical and 
agricultural product test data against unfair commercial use 
was a serious concern.  CAFTA-DR now requires Nicaragua to 
protect undisclosed test data submitted for the purpose of 
product marketing approval of pharmaceutical and agricultural 
chemical products against disclosure and unfair commercial 
use. 
 
SERVICES BARRIERS 
----------------- 
 
Financial Services 
------------------ 
 
¶17. (U) Nicaragua has ratified its commitments under the 1997 
WTO Financial Services Agreement.  Its commitments cover most 
banking services, including the acceptance of deposits, 
lending, leasing, guarantees, and foreign exchange.  However, 
they do not cover the management of assets or securities. 
Nicaragua allows foreign banks to operate either as wholly 
owned subsidiaries or as branches.  CAFTA-DR ensures U.S. 
financial service suppliers have full rights to establish 
subsidiaries, joint ventures, or branches for banks. 
 
¶18. (U) The country's banking system is now stable after 
having undergone severe restructuring several years ago.  In 
2005, as part of the Poverty Reduction and Growth Facility 
agreement with the IMF, Nicaragua further strengthened the 
financial sector through reforms to its banking laws, the 
Superintendent of Banks and Other Financial Institutions, and 
the Guarantee of Deposits in Institutions of the Financial 
System.  In recent years, U.S. and foreign banks have begun 
to re-enter the market.  In 2005, GE Financial Services 
acquired 49.99% stake in the Bank of Central America, a 
Nicaraguan-owned regional bank.  In October 2006, Citigroup 
announced, subject to regulatory approval, the acquisition of 
Grupo Financiero Uno, the largest credit card issuer in 
Central America with a distribution network of 75 branches. 
Other foreign banks have also opened offices, such as Banco 
del Istmo, a member of the Panamanian Grupo Banistmo 
currently in the process of being acquired by Hong Kong and 
Shanghai Banking Corporation.  Additionally, Banco ProCredit 
(formerly Financiera ProCredit) and FINDESA, both 
microfinance institutions, have been authorized to operate as 
commercial banks. 
 
¶19. (U) The insurance sector is open to private sector 
participation.  Several private insurance companies compete 
with the government-owned firm INISER.  Under CAFTA-DR, U.S. 
insurance suppliers have full rights to establish 
subsidiaries, joint ventures, and/or branches.  Nicaragua 
allows U.S.-based firms to supply insurance on a cross-border 
basis, including reinsurance, reinsurance brokerage, as well 
as marine, aviation, and transport insurance, in addition to 
other insurance services.  Further, Nicaragua accords 
substantial market access in services across their entire 
services regime, subject to very few exceptions.   No U.S. or 
other foreign insurance company has yet entered the 
Nicaraguan market. 
 
Telecommunications 
------------------ 
 
¶20. (U) Under CAFTA-DR, Nicaragua opened its 
telecommunications sector to U.S. investors, service 
providers, and suppliers.  All exports, including 
telecommunications equipment, receive duty-free treatment. 
 
¶21. (U) The telecommunications sector is fully privatized. 
TELCOR, the regulatory entity, has generally encouraged 
competition in its licensing and regulatory practices. 
Enitel, the former state telephone company, is now 99.03% 
owned by the Mexican telecommunications company America 
M"vil.  America Movil also obtained a license to operate the 
cellular company Alo PCS.  In 2004, America Movil merged 
Enitel Movil with Sercom Nicaragua, and BellSouth sold its 
Nicaraguan unit TCN BellSouth to Telefonica Moviles, a 
Spanish company.  As a result, the mobile industry in 
Nicaragua is now served by only two nationwide operators: 
Telefonica Moviles and America Movil (now Claro).  Enitel 
controls switching for all cellular service, and therefore 
may exercise leverage over companies seeking interconnection. 
 
 
¶22. (U) At the end of 2004, Enitel unilaterally imposed a 
100% increase in termination rates for calls sent to wireless 
networks and blocked traffic to such networks when carriers 
refused to pay the increase.  TELCOR was not effective in 
requiring Enitel to justify the increase.  The opening of the 
fixed-line and international telephony markets was delayed 
when the National Assembly created the Office of the 
Superintendent of Public Services (SISEP) to regulate 
electricity, water, and telecommunications and the role of 
TELCOR was obscured.  Institutional deadlock was averted when 
the formation of SISEP was delayed until January 2007. 
Fixed-line and telephony markets are now open.  However, 
duplicate appointments to TELCOR by the executive and 
legislative branches have resulted in a continuing leadership 
stalemate for the regulatory authority. 
 
¶23. (U) The Law on Promotion of National Artistic Expression 
and on Protection of Nicaraguan Artists (Law no. 215, 
National Gazette 134, July 17, 1996) requires that foreign 
production companies contribute 5% of total production costs 
to a local cultural fund.  In addition, the law requires that 
10% of the technical, creative, and/or artistic staff must be 
hired locally.  Under CAFTA-DR, Nicaragua does not require 
U.S. film productions to contribute to the cultural fund or 
hire locally. 
 
INVESTMENT BARRIERS 
------------------- 
 
¶24. (U) Under CAFTA-DR, all forms of investment are 
protected, including enterprises, debt, contracts, 
concessions, and intellectual property.  U.S. investors enjoy 
in almost all circumstances the right to establish, acquire, 
and/or operate businesses in Nicaragua on an equal footing 
with local investors.  Among the rights afforded to U.S. 
investors are due process protections and the right to 
receive a fair market value for property in the event of 
expropriation.  Investor rights are backed by an effective, 
impartial procedure for dispute settlement that is fully 
transparent.  Submissions to dispute panels and panel 
hearings will be open to the public, and interested parties 
may submit their views. 
 
¶25. (U) Poorly enforced real property rights constitute a 
serious barrier to investment in Nicaragua.  In the 1980s, 
the Sandinista government confiscated nearly 30,000 
properties.  Since 1990, many thousands of individuals have 
filed claims for the return of real property or compensation. 
 A weak registration system has led to conflicting claims 
that can delay investment.  Property claimants can sue for 
the return of property, but the legal system favors current 
occupants.  Most claimants seek compensation through the 
low-interest bonds issued by the Government.  As of November 
2006, the Nicaraguan government had settled nearly 4500 U.S. 
citizen claims.  Fewer than 700 embassy-registered U.S. 
claims were outstanding.  Many valuable properties remain in 
the hands of the government or private parties, including 
former Sandinista government officials and military officers. 
 The United States continues to urge the Nicaraguan 
government to resolve outstanding claims. 
 
¶26. (U) Reforms introduced in 2005 halted exemptions on the 
taxation of certain imported items, including taxes on a list 
of luxury products and materials considered necessary to 
develop tourism.  The Ministry of Tourism and the private 
sector have been lobbying the National Assembly to 
re-establish these incentives and to approve a new law that 
would allow tourism companies to issue investment bonds. 
 
¶27. (U) A new environmental protection law entered into force 
on May 20, 2006 which is much more rigid than previous laws, 
especially since it combines fines ranging between $1,000 and 
$50,000 with actual jail time for lawbreakers and penalties 
for accomplices.  The law requires that any project affecting 
the environment undergo an environmental impact assessment 
and that investors provide some sort of financial guaranty, 
in an amount determined by the Ministry of Environment and 
Natural resources, to cover the risk of environmental damage. 
 
 
¶28. (U) In June 2006, the National Assembly approved a new 
law on forest management that prohibits the export of any 
species of wood from Nicaragua for the next ten years that 
has not undergone transformation into an intermediary or 
final product.  The law also prohibits for ten years the 
harvest of six species of wood: mahogany, cedar, pine, 
pochote, mangle, and ceibo.  An exception is made for pine 
harvested in the departments of Nueva Segovia, Jinotega, and 
the Autonomous Region of the North Atlantic. 
 
Arbitration 
----------- 
 
¶29. (U) The Nicaraguan government accepts binding 
international arbitration of investment disputes between 
foreign investors and the state.  Nicaragua is party to both 
the Inter-American Convention on Arbitration and the New York 
Convention on Arbitration, and is a member of the 
International Center for the Settlement of Investment 
Disputes (ICSID).  Nicaragua signed the 1958 New York 
Convention on the recognition and enforcement of foreign 
arbitration awards and ratified it in 2003.  In 2005, the 
National Assembly approved an arbitration law based on the UN 
Model Law on International Commercial Arbitration.  The law 
allows for arbitration between private parties, however, 
parties may still submit a motion to the Supreme Court 
seeking to nullify an arbiter's decision.  In May 2006, the 
Nicaraguan Chamber of Commerce inaugurated Nicaragua's first 
center for mediation and arbitration.  Nicaraguan businesses 
may choose from a list of national and international 
mediators to deal with a dispute. 
 
ELECTRONIC COMMERCE 
------------------- 
 
¶30. (U) CAFTA-DR includes provisions on electronic commerce 
that reflect its importance to global trade, including the 
provision of services by electronic means.  Under CAFTA-DR, 
Nicaragua provides non-discriminatory treatment to U.S. 
digital products and services, does not impose customs duties 
on digital products, and cooperates with the United States in 
policy areas related to electronic commerce. 
 
OTHER BARRIERS 
-------------- 
 
¶31. (U) The anti-corruption provisions in the CAFTA-DR 
require each government to ensure that bribery in matters 
affecting trade and investment is treated as a criminal 
offense, or is subject to comparable penalties under law. 
However, voices within and outside of Nicaragua have raised 
concerns that Nicaragua's legal system is weak, cumbersome, 
and lacks independence.  Many members of the judiciary, 
including those at high levels, are widely believed to be 
corrupt or subject to outside political pressures. 
Enforcement of court orders is uncertain and sometimes 
subject to non-judicial considerations.  Courts have granted 
a writ of shelter (called an "amparo") to protect criminal 
suspects of white collar fraud by enjoining official 
investigatory and enforcement actions almost indefinitely. 
Foreign investors are not specifically targeted, but are 
often at a disadvantage in disputes against nationals with 
political connections.  Recognizing Nicaragua's reputation 
for having problems with corruption, President Bola$os made 
anti-corruption a centerpiece of his administration's 
domestic policy.  This effort greatly contributed to 
Nicaragua's selection in 2004 as a country eligible for 
Millennium Challenge Account (MCA) assistance.  Nicaragua's 
MCA program requires the country to maintain progress on 
eligibility criteria, particularly in the areas of 
controlling corruption, improving government effectiveness, 
and assuring political/civil liberties. 
 
Law 364 
------- 
 
¶32. (U) U.S. multinational firms and the U.S. Chamber of 
Commerce have expressed concern regarding Nicaraguan Law 364, 
enacted in October 2000 and published in January 2001.  Law 
364 retroactively imposes liabilities on foreign companies 
that manufactured or used the chemical pesticide DBCP in 
Nicaragua.  DBCP was banned in the United States after the 
Environmental Protection Agency cancelled its certificate for 
use (with exceptions) in 1979.  U.S. multinationals have 
expressed concern that the law and its application under 
Nicaragua's judicial system lack due process, transparency, 
and fundamental fairness.  In particular, the law allows for 
retroactive application of no-fault liability related to a 
specific product, waiver of the statute of limitations, 
irrefutable presumption of causality, truncated judicial 
proceedings, imposition of a $100,000 non-refundable bond per 
defendant as a condition for firms to put up a defense in 
court, escrow requirements of approximately $20 million 
earmarked for payment of awards, and minimum liabilities as 
liquidated damages (ranging from $25,000 to $100,000.)  In 
January 2006, the National Assembly placed an embargo on the 
trademark rights of an American multinational because of its 
involvement in the production of this pesticide.  Some 
plaintiffs seek to lay claim to U.S. company assets in other 
countries. 
TRIVELLI